A task force in Nepal has proposed legal changes allowing the country’s central bank to issue its own digital currency. This decision comes after a study indicated that such an initiative is feasible and recommended certain provisions that would authorize the regulator to proceed with its realization.
Central Bank of Nepal prepares legal ground for national digital currency
The Nepal Rastra Bank (NRB) is ready to revise the law determining its powers and responsibilities which would allow the monetary authority to issue a digital version of the country’s fiat currency, the Nepalese rupee. The news follows a study concluding that a central bank digital currency (CBDC) is a feasible project.
According to Revati Nepal, head of the bank’s currency management department, a working group has already drafted an amendment bill. “After internal discussions, we will send the draft law to the government for tabling in parliament,” he added, quoted by the Kathmandu Post on Sunday. Amendments will be made to Nepal’s Rastra Bank Act of 2002.
The study on the matter was announced with the NRB’s 2021-22 monetary policy paper. A team led by Revati Nepal suggested that before developing the CBDC, the regulator should introduce the legal provisions that would enable it to implement it.
Experts have now proposed concrete steps to move forward, including preparing a legal framework for digital currency. “There are suggestions of technical and economic issues to consider,” the NRB official said.
The central bank intends to design a separate digital wallet for the CBDC through which digital banking transactions could be conducted. “Steps will also be taken to explore interoperability with digital payment service providers,” Nepal explained.
Kathmandu in no rush, wants to see how China and India fare with their CBDCs
The executive made it clear that Nepal Rastra Bank was in no rush to issue the digital currency. The Himalayan nation’s monetary authority first wants to observe how neighboring South Asian countries, including India and China, are proceeding with the introduction of their CBDCs. Nepal emphasized:
We don’t want to take unnecessary risks by rushing into the introduction of digital currency.
Finance Minister of Nepal’s southern neighbour, Nirmala Sitharaman, announced in February that the world’s most populous democracy plans to launch a digital version of its currency in the next fiscal year, which begins on April 1. of the largest economies to introduce digital currency with the Reserve Bank of India (RBI) set to roll it out in 2023.
Nepal’s other powerful neighbor, China, has been exploring the potential of a CBDC since 2014 and is already conducting trials. Cities like Shenzhen, Suzhou and Chengdu became the scene of the initial launch of its digital yuan in 2020. The tests were later extended to other regions, including Hainan province, Shanghai and a number of other cities in 2021. The People’s Bank of China offered athletes and visitors a chance to try e-CNY currency at the Winter Olympics this year.
Various types of digital currencies, including decentralized cryptocurrencies like bitcoin, have been in circulation for years now. However, most governments are in the early stages of developing state-issued digital currencies. According to a Bank for International Settlements survey published in 2021, 86% of central banks were exploring the potential of CBDCs, 60% were experimenting with the technology, and only 14% were rolling out pilot projects.
Nepal still has a long way to go, but the NRB study has produced a concept paper which is currently under review at the bank. “We will identify the way forward after the conclusion of the ongoing discussions,” Revati Nepal said. “It would be good for Nepal to introduce a digital currency with appropriate technology acquired from other countries,” added Prakash Kumar Shrestha, head of the central bank’s economic research department, who highlighted other important aspects. that require special attention, such as cybersecurity.
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